Use of Nonqualified Deferred Compensation for Exit or Succession Planning-Part 2

As an owner recognizes these issues, a nonqualified deferred compensation plan provides the owner with a tool he or she can use to advance the goals.

First, the owner can work to put in place a plan which provides certain key employees with significant benefits for growing the business to the size it needs to be to meet the needs. The owner can promise the key employees a portion of the growth of the company over and beyond its existing levels in the form of additional compensation when those benchmarks are met.

Second, the owner can put in place a requirement that the key employees stay in place in the company as a condition to receiving the compensation promised. In other words, the employees get the compensation only if they remain with the business and continue its operation for a period of time necessary to keep the business stable.

It is important that the owner carefully consider the different aspects of their particular exit or succession plan, and diligently put in place an appropriate plan that will meet their needs. It is also important for the owner to recognize the different contingencies which might develop, and put in place alternative plans should the primary plan have problems.